On January 7, the OCC and the Fed announced a settlement with 10 mortgage servicing companies which includes cash payments to eligible borrowers and other assistance, such as loan modifications and forgiveness of deficiency judgments. The settlement relates to mortgage servicers operating under enforcement actions issued in April 2011 by the OCC, the Fed, and the OTS. Joint Release.
On June 21, 2012, Judge Lewis A. Kaplan of the Southern District of New York approved a $40 million settlement in an RMBS class action brought by Locals 302 and 612 of the International Union of Operating Engineers – Employers Construction Industry Retirement Trust against Lehman Brothers and certain of its former officers and directors. The settlement resolved claims against the officers and directors only. In the same order, Judge Kaplan certified a plaintiff class for settlement purposes only. Order.
On Wednesday, June 6, 2012, Judge Barbara R. Kapnick granted the motions of the Attorneys General of the states of New York and Delaware to intervene in the proceeding to approve the $8.5 billion settlement between Bank of America and investors in certain Countrywide MBS. Both Attorneys General previously had been allowed to intervene in related federal court proceedings. The case was subsequently remanded to state court, where the New York and Delaware AGs again sought to intervene. In granting the motions over the objection of the trustee for the MBS trusts and certain institutional investors, Judge Kapnick found that the Attorneys General had “identified legitimate quasi-sovereign interests at play in this Proceeding,” and that the intervention would not result in undue delay. Order.
On May 10, 2012, Assured Guaranty announced that it had reached a $165.6 million settlement with Deutsche Bank resolving claims related to RMBS transactions issued, underwritten or sponsored by Deutsche Bank that were insured by Assured Guaranty under financial guaranty insurance policies. The settlement also resolved claims related to RMBS exposures in re-securitization transactions on which Assured Guaranty provided credit protection through credit default swaps. The claims resolved by this settlement were not yet in litigation. Press Release.
On April 10, 2012, New York Attorney General Eric Schneiderman filed an amended pleading in intervention in the Article 77 settlement approval proceeding concerning Countrywide RMBS that is currently pending New York state court. The Attorney General challenges the fairness and adequacy of Bank of America’s $8.5 billion proposed settlement addressing representation and warranty claims against Countrywide, claiming that the $8.5 billion settlement does not adequately cover investors’ losses, which are alleged to be $242 billion. The Attorney General also points out that only 22 investors directly participated in the settlement negotiations. The Attorney General’s earlier motion to intervene, filed last August, was determined to be moot when the case was removed to federal court. Pleading.
On November 18, 2011, U.S. District Judge William H. Pauley III of the Southern District of New York granted the requests of the attorneys general of New York and Delaware to intervene in the proceeding seeking approval of an $8.5 billion settlement between Bank of America Corp. and the Bank of New York Mellon, as trustee for several trusts that issued Countrywide Financial Corp. RMBS certificates. The Court found that the intervention of the state AGs would protect the interests of absent investors. In the same order, the Court denied requests to intervene brought by four individual homeowners who are obligors on mortgages owned by one or more of the trusts covered by the proposed settlement agreement. The Court found that the homeowners lacked a direct financial interest in the outcome of the case and could not establish any potential prejudice they might suffer by not being permitted to participate in the settlement approval proceeding. Order.
On November 28, 2011, U.S. District Judge Jed S. Rakoff of the Southern District of New York refused to approve a proposed settlement between the SEC and Citigroup Inc. in connection with Citigroup’s alleged shorting of RMBS that it marketed and sold to the public on the grounds that the settlement was “neither fair, nor reasonable, nor adequate, nor in the public interest.” The settlement involved the payment of a total of $285 million by Citigroup, as well as the imposition of certain injunctive measures against Citigroup. In rejecting the settlement, Judge Rakoff stringently criticized the SEC’s policy – “hallowed by history, but not by reason” – of allowing settling defendants to neither admit nor deny wrongdoing because it “deprives the Court of even the most minimal assurance that the substantial injunctive relief it is being asked to impose has any basis in fact.” He stressed that the exercise of judicial power and authority that does not rest on facts cannot serve the public interest because it “is worse than mindless, it is inherently dangerous.” Judge Rakoff consolidated the action with a related matter filed by the SEC against a Citigroup employee and directed the parties to be ready to try the case beginning on July 16, 2012. Order.
The National Credit Union Administration (“NCUA”), an independent federal agency that supervises and charters federal credit unions, reached a $145 million settlement with Deutsche Bank and a separate $20.5 million settlement with Citigroup, stemming from the banks’ sales of RMBS to five failed credit unions. The NCUA did not file a lawsuit against either Citigroup or Deutsche Bank, although the NCUA currently has RMBS suits pending against three other financial institutions. Press Release 1. Press Release 2.
On September 27, 2011, the Office of the Inspector General for the FHFA (“OIG”) released a report criticizing the FHFA’s approval of Freddie Mac’s $1.35 billion settlement of mortgage repurchase claims against Bank of America. The OIG found that significant concerns about the reliability of Freddie’s loan review processes should have alerted the FHFA to the risk that these deficiencies skewed its analysis of the risk of loss to Freddie and, therefore, its ability to fairly assess the settlement. OIG Report.
On August 15, 2011, the institutional investors that negotiated the proposed $8.5 billion settlement with Bank of America regarding representations and warranties claims against Countrywide Financial Corp. filed a response to AIG’s motion to intervene and oppose the settlement. The institutional investors did not object to AIG’s intervention, but urged the court to carefully scrutinize AIG’s objection, pointing to AIG’s failure to disclose a simultaneously filed individual securities lawsuit against BofA as evidence that AIG is improperly attempting to advance its own interests ahead of those of other certificate holders. Investors’ Response.